18 February 2008

One more thing on Cox and Alm

I always keep international economics in mind, so while reading for my earlier post, I took this interesting excerpt Cox and Alm's article. Their view for why consumption went up in past years is that prices have been falling. And why is that?

There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.

Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.

By the way, if the theme interests you, I really recommend reading the whole thing.

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